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Corporate Mergers and Acquisitions, Public Offerings Fell Sharply in 2022: Report

Global equity issuance for 2022 plummeted 66.6 percent from last year, to $351.76 billion, levels not seen since 2006, a new report by S&P Global Market Intelligence showed. The total value of initial public offerings (IPOs) dropped even further, down 71.3 percent for the year.

Corporate mergers and acquisitions (M&A) also slowed down last year. Total value of globally announced M&A deals fell 35.8 percent year over year, to $2,983 trillion, the second-lowest annual totals since 2013. As the report noted, “Lower equity prices and greater volatility gave issuers little incentive to sell shares at reduced valuations. ”

“Persistent economic headwinds held back global M&A and IPO activity in 2022, and a sharp turnaround is not expected,” Joe Mantone, author of the report, stated. “Any signs of the Fed loosening monetary policy should benefit M&A and equity issuance.”

According to Mantone, a more dovish Federal Reserve policy would likely result in a comeback in the stock market and IPO activity, while lower interest rates would improve the financing conditions in mergers and acquisitions.

Steve Hanke, professor of applied economics at The John Hopkins University and former economic advisor to President Ronald Reagan, attributed the slowdown to last year’s reversal in broad money supply (M2) growth.

The Federal Reserve is responsible for the slowdown in the corporate deal activity, Hanke told The Epoch Times.

“In May 2022, when the Fed announced its quantitative-tightening program, the money supply began shrinking,” he said. “By December, the three-month annualized growth rate of M2 had sunk to a stunning negative 5.4 percent.”

In a speech on Jan. 10, Fed Chair Jerome Powell said that “price stability is the bedrock of a healthy economy,” but that restoring it when “inflation is this high can require measures that are not popular in the short term.”

The Fed on Wednesday hiked interest rates by 25 basis points, in line with market forecasts, raising the benchmark federal funds rate to a target range of 4.50–4.75 percent. While this was the smallest rate hike since the current quantitative-tightening cycle began in March 2022, central bank officials expect that additional increases will be required to bring inflation under control.

Due to the Fed’s efforts to tighten financial conditions, a record-breaking money supply has been removed from the US economy, according to Standard & Poor’s. The supply of M2 (cash, personal savings, and market accounts) dropped to $21,207 trillion in December 2022 from a peak of $21,740 trillion in March 2022, as the Fed’s higher interest rates took effect.

Asset prices respond to slowing money supply growth first, followed by economic activity, Hanke said. The last to fall are prices, which can take one to two years to catch up, he added.

“Given this transmission mechanism, we can expect a continued decline in economic activity and a recession in 2023.”

Hanke also believes the Fed officials need to pay more attention to changes in M2 and its impact on the economy.

“As is always the case, the course of the economy is determined by what’s happening to the money supply.”

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